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Oh dear, the BBC Radio Four File on Four programme on IPs has been aired (listen here) and it amounts to nothing less than a demolition job on Insolvency Practitioners (IPs) and the profession's regulation, standards of competence, integrity and professionalism. Where however was the balance in the programme? Yes, we had one commentator from the ICAEW (Mr Vernon Soare) but he seemed less than competent in responding to the Mr Allan Urry's questions. A number of other commentators (Mr Stephen Hunt aside) also seemed to have a tenuous grasp of the subject matter and it's complexities at best and no understanding of the subtleties involved in this complex and demanding field. I will not address incorrect and sloppy deployment of terminology (i.e. using "bust" repeatedly and bankruptcy laws in a corporate context) and confusion between corporate insolvency regimes but will instead focus on the main points raised by the programme. Let us take some of the main points raised by the contributors in turn before moving on to the main thesis addressed in the programme, namely: "Do Insolvency Practitioners measure up to the high standards expected of them when they are called in to a stricken business?" or put another way can, "...we trust insolvency practitioners to conform to their own standards and ethics when they bury the corporate dead or resuscitate the dying."
(1) Landlords getting a bad deal - the problem is with insolvency not with administration as a procedure!
INSOLVENCY! That is what is being dealt with here. That term in layman's language means that there is a dearth of money to satisfy all claims! The technical definition for companies is stated in s.123 Insolvency Act 1986 - for the benefit of a number of the commentators here is the definition:
"123.— Definition of inability to pay debts.
- A company is deemed unable to pay its debts
- if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or
- if, in England and Wales, execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or
- if, in Scotland, the induciae of a charge for payment on an extract decree, or an extract registered bond, or an extract registered protest, have expired without payment being made, or
- if, in Northern Ireland, a certificate of unenforceability has been granted in respect of a judgment against the company, or
(e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
- A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities...."
I make this obvious point because it seems as if the programme makers and a number of contributors, in their haste to condemn IPs, have forgotten that the whole process is bound up with the idea that there is an insufficiency of assets to placate the many claims that are involved. In the context of landlords it is not administration that "bites hard" it is insolvency. A composition needs to take place because the tenant is insolvent! To say a risk transfer from tenant to landlord takes place is rather a stretch when discussing commercial landlords. The landlord, when setting rent levels and so forth, factors in risks such as insolvency. To attack the system after the event due to a poor return is to tacitly admit that your initial bargain was inappropriate. The landlord should have bargained better or sought, like banks have very successfully done, to protect themselves more thoroughly. It is not as if commercial landlords are "naive unsecured creditors."
(2) The Judgments referred to in the programme
Mr Justice Henderson's judgment in Mourant & Co Trustees Ltd & Anor v Sixty UK Ltd & Ors  EWHC 1890 (Ch) (23 July 2010) and the criticism leveled at Mr Nick O'Reilly and Mr Peter Hollis in that judgment were repeated on the programme. The independent valuation disparity (£1 million not the stated £300,000) is certainly disquieting. In the context of judgments that are critical of IPs Mr Vernon Soare's (Executive director of professional standards at the ICAEW) rather strange view that, "at the margin there may be judgments that are wrong" can do nothing to reassure the public that IPs are competently regulated. If judgments are "wrong" they will be appealed (costs allowing). To dismiss thorough, reasoned judicial expositions in this broad brush manner is simply not appropriate for a professional body that represents Officers of the Court. His "arguing both ways" on specific cases and specific details does also not come across well.
(3) Unsecured and Secured Creditors
I have addressed the rather strange methodology in the OFT report elsewhere. I do not intend to rehearse the points here. The programme did seem to cherry pick the conclusions of the OFT report. Where was the discussion of why secured lending should, in the eyes of the OFT, continue to exist in its current form?
On unsecured creditors has Mr Bertram DePallier [sic], the hedge fund manager, not heard of security or indeed, SIP16, pari passu, the Insolvency Act 1986 and all of the attendant case law? Bertram is, as a hedge fund manager, presumably an astute individual who could have contracted for better protection for his hedge fund's £200,000,000. He did not avail himself of this opportunity. His supposed beef with the system is all the more hollow after the event. His conflict of interest complaints against Ms Maggie Mills of Ernst & Young also manifestly fail to appreciate that IPs who initially investigate a company's affairs have undertaken valuable spade work in the pre-appointment period. This area is regulated and IPs are professionals. There is also a court hearing safeguard to sanction the appointment and mechanisms to address so called conflicts of interest through complaints systems. Currently it could be argued that this conflict argument is spurious and based on nothing more than suspicion. We must see some evidence of wrongdoing to justify this complaint against regulated professionals.
(4) Pre-pack administrations and phoenixism
I will not bother to recycle the arguments for and against pre-packs here, save to say that Dr Sandra Frisby's research has shown that they are not the bogey man procedure that the programme paints and that they do in fact serve a useful function. Similarly there are numerous provisions in the Insolvency Act 1986 that exist to preclude the phoenixism and its associated problems which are outlined in the programme (e.g. section 216 IA86) in relation to Ulva Holdings Limited. These provisions are alluded to in the programme using the term 'illegal.' That the administrators did not avail themselves of the Insolvency Act 1986 tools is alarming. Mr Martin Coyne and Mr Matthew Hardy were castigated by the Court of Appeal in Coyne & Anor v DRC Distribution Ltd & Anor  EWCA Civ 488 (15 May 2008) for their conduct. It seems as if their professional body (ICAEW) has taken a different view according to the programme holding that the IPs conduct was not "discreditable." This was a "whitewash" according to one businessman creditor.
(5) The General Thesis - "Do Insolvency Practitioners measure up to the high standards expected of them when they are called in to a stricken business?"
There are always a few bad apples in every bunch. This is true of all professions and other walks of life. It is also true that one swallow does not make a summer. In the same way one or even ten or 'some' (as the BBC put it) negligent (or even fraudulent) IPs does not mean that the whole profession is steeped in some form of unregulated malaise of incompetence, theft and general unprofessionalism. The eight RPBs and R3 need to do more to demonstrate that this is not the case. The immediate publication of the details of the value added by the IP profession for the alleged £1 billion in fees would be a good start. Hang on! R3 did publish this information in March 2010 - this appears to have bypassed the File on 4 research team. R3 should immediately re-release this information.
It is to be lamented that Mr Ed Davey MP, the minister with responsibility for the Insolvency Service (IS), was too busy to take part in the programme. Perhaps the programme makers, in the interests of balance, could have approached the IS chief executive, as they have done before.
"BPIR is an excellent series, of interest to both corporate and personal insolvency lawyers,...